They've got big, complicated words that make zero sense - we've got a simple explanation!
Have you ever walked into a room where everyone is using big, complicated words that make zero sense? That’s what it can feel like when you read through a bank website, look at money-related articles, or talk to someone who is in the finance realm.
This article breaks down some of that confusing financial jargon (the flash kupu experts like to use) so you can understand what’s really going on with pūtea.
Compounding Interest
Compounding interest is when you earn interest on your interest that you already earned.
Hei tauira:
If you save $100 and earn $5 in interest, your balance becomes $105. Next time interest added, it’s calculated using the $105, not just the original $100.
It’s like your money is doing behind-the-scenes mahi. Slowly growing, then growing again from that growth.
Note! Money doesn’t always grow – if you have your money invested you can get negative or positive returns.
Diversification
Diversification in terms of finance can mean spreading your pūtea across different investments.
So, lowkey it is like the saying “don’t keep all your eggs in one basket.”
If all your pūtea is in one investment (company or type of investment) and that investment drops, your whole balance may be impacted.
But, if you spread your pūtea across different companies (think Amazon, or Meta or Nvidia) or types of investments (a managed fund, your KiwiSaver account or your Whai Rawa account), one drop may not affect your balance as much.
Market Volatility
Market volatility describes how much and quickly the prices of shares or investments move up and down.
It’s basically the share market’s version of a roller-coaster.
High market volatility tends to mean higher risk and can be slightly more unpredictable – read: your balances can go up and down.
Lower market volatility tends to mean lower risks where the sharemarket is potentially more stable. So less ups and downs in your balance.
Dividend
A dividend is when a company decides to share some of its profits with the people who own its shares.
Not all companies pay dividends and dividends are not guaranteed even if they do. A dividend is split out at a rate per share you own so say a company is paying 0.50c per share and you have invested $100 or 100 shares you would receive a dividend of 0.50c x 100 = $50.
Pūtea and investing are not as tricky as they seem, but it is the language that make it confusing.
These four kupu are just the beginning, but learning them puts you one step closer to understanding how pūtea works and how it can work for you.
The information contained in this document is intended for general guidance and information only and is not personalised to you. It does not take into account your particular financial situation or goals.
The links shared and associated content on this website have not been vetted or otherwise approved by Whai Rawa Fund Limited and neither Whai Rawa Fund Limited, nor Te Rūnanga o Ngāi Tahu endorse the linked material or its provider in any way. The information provided by these links and third-party providers is not personalised to you and your situation. Before making any investment decision, or taking any action or not, you should refer to the Product Disclosure Statement and / or consult a licensed financial advice provider.
Sign up now and get them delivered right to your inbox – piping hot and no delivery fee!